What Happens Now? After Brexit?

Jun 30

WHAT HAPPENS NOW? WHAT HAPPENS AFTER BREXIT?

It seems likely the British government will spend the next few weeks or months developing a strategy for its departure from the EU.

Right off the bat, the British need to put a new leader in place. Prime Minister David Cameron resigned after his side lost Thursday’s vote. Cameron’s comments suggest he does not plan to invoke Article 50. He indicated the new Prime Minister should be responsible for initiating the process.

Article 50 is a clause in the Lisbon Treaty describing the legal process a country must follow to notify the European Union it intends to withdraw. Once notification is delivered, there is a two-year window to complete negotiations. Any extension of negotiations requires the agreement of all EU members, according to The Guardian.

Once they’ve given notice, the U.K. will have to negotiate the terms of its exit from the EU and establish the terms of its future relationship with the group. According to the International Monetary Fund (IMF), the nation also will need to renegotiate trade relationships with 60 or so non-EU countries where its trade is currently guided by EU agreements.

No one can be certain how Britain’s economy will be affected as the nation determines its new position in the world’s pecking order. However, The Economist reported on two possible futures, as set forth by the IMF:

“In the first scenario, Britain quickly agrees on a new trade deal with the EU; in the second, the negotiations are more protracted and Britain eventually settles for basic World Trade Organization rules. In the first scenario, sterling depreciates by 5 percent. GDP growth slips to 1.4 percent in 2017 and unemployment rises slightly…In the second scenario, Britain falls into recession next year. Unemployment hits about 7 percent by 2018, up from around 5 percent now (during the financial crisis it peaked at 8.5 percent). Real wages will stagnate, mainly because of high inflation. Surprisingly, Britain’s trade balance will move into a small surplus, thanks not to the dynamism of exporters but ‘because demand for imported goods plunges due to exchange-rate depreciation and reduced consumption.’ ”

In a victory speech, Boris Johnson, former Mayor of London, Brexit supporter, and a favorite to become the next Prime Minister, said:

“In voting to leave the EU, it is vital to stress there is no need for haste…There is no need to invoke Article 50…We have a glorious opportunity to pass our laws and set our taxes entirely according to the needs of the U.K.; we can control our borders in a way that is not discriminatory but fair and balanced and take the wind out of the sails of the extremists and those who would play politics with immigration.”

EU leaders appear to have a different timetable in mind than recommended by Cameron and Johnson. In a joint statement, Martin Schulz, President of the European Parliament,
Donald Tusk, President of the European Council, Mark Rutte, Holder of the Presidency of the Council of the EU, Jean-Claude Juncker, President of the European Commission, said:

“We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be…we hope to have [the U.K.] as a close partner of the European Union in the future. We expect the United Kingdom to formulate its proposals in this respect. Any agreement, which will be concluded with the United Kingdom as a third country, will have to reflect the interests of both sides and be balanced in terms of rights and obligations.”

Will this be the glorious opportunity promised by the leaders of the ‘leave’ side or a tragic split as predicted by the ‘remain’ leaders? Much depends on when and what Britain negotiates with the EU. In the meantime, there is likely to be considerable economic uncertainty and some market volatility – not that either of these ideas – uncertainty and volatility – should be seen as anything other than absolutely and totally normal!

Weekly Focus – Think About It

Since the outcome of the referendum was announced, the top questions asked of Google in the U.K. have been:

1. What does it mean to leave the EU?
2. What is the EU?
3. Which countries are in the EU?
4. What will happen now that we’ve left the E.U?
5. How many countries are in the EU?

NPR opined that British voters seem to have given serious thought to the implications of their choices after the polls had closed.

Jonathan K. DeYoe is the president of DeYoe Wealth Management in Berkeley, CA, the author of Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend, and the founder of Happiness Dividend. Happiness Dividend is a blog offering educational content and tools. The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which financial choices and which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Financial Planning and Investment Advice are offered through DeYoe Wealth Management, Inc., a registered investment advisor doing business as Happiness Dividend. All performance referenced anywhere on this website is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Original content written by Jonathan K. DeYoe, Carson Group Coaching, and Broadridge Advisor Solutions (copyright 2017). The Happiness Dividend crew selects and edits all content with permission and care before you see it here. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.Disclosures